Monetary policy and investment dynamics in Morocco: an econometric analysis of transmission mechanisms and economic growth

Résumé

The interaction between monetary policy and investment plays a fundamental role in shaping economic stability and growth, particularly in emerging economies. In Morocco, monetary authorities primarily utilize interest rate adjustments to influence macroeconomic conditions and stimulate investment. However, the effectiveness of monetary policy transmission remains a key concern due to financial market constraints, structural rigidities, and external shocks. Understanding the dynamics of this transmission mechanism is crucial for designing policies that foster sustainable economic development.  This study employs an econometric approach using a Vector Error Correction Model (VECM) to analyze the long-term and short-term effects of monetary policy on investment, inflation, and economic growth. The dataset comprises quarterly time-series data from 2015 to 2024, covering Morocco’s key macroeconomic indicators, including the policy interest rate, investment-to-GDP ratio, inflation, and real GDP growth.  The empirical findings reveal two long-term equilibrium relationships, confirming that monetary policy exerts a significant influence on investment and inflation. The error correction mechanism (ECM) suggests that investment reacts more rapidly to monetary shocks, while GDP and inflation adjust gradually. The Impulse Response Functions (IRFs) indicate that an increase in the policy rate initially curbs inflation but dampens investment, highlighting the trade-offs in monetary policy decisions. Additionally, the variance decomposition analysis confirms that inflation is primarily driven by interest rate movements, while investment is more closely linked to GDP fluctuations. These results provide critical insights for policymakers at Bank Al-Maghrib, emphasizing the need for a balanced monetary stance that supports investment without compromising inflation stability. The study also underscores the importance of financial sector deepening to enhance the effectiveness of monetary policy transmission in Morocco.